HSBC misses expectations on 2019 pre-tax profit, shares down nearly 3%

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HSBC on Tuesday reported pre-tax profit that missed analysts’ expectations after the bank took a goodwill impairment relating to its European investment banking and commercial banking businesses.

The bank, Europe’s largest by assets, recorded a 32.9% fall in pre-tax profit for 2019 to $13.35 billion, much lower than Refinitiv forecast of $19.83 billion.

In a statement accompanying the earnings release, Noel Quinn, HSBC’s interim chief executive, said the $7.3 billion goodwill impairment in Europe “arose from an update to long-term economic growth assumptions, which impacted a number of our businesses,” and from the “planned reshaping” of the bank’s global banking and markets business.

The write-down resulted in a pre-tax loss of $4.65 billion in the bank’s European business.

In terms of HSBC’s business in Asia, where the bank derives the bulk of its earnings, Quinn warned of pressure from the ongoing coronavirus outbreak.

“Since the start of January, the coronavirus outbreak has created significant disruption for our staff, suppliers and customers, particularly in mainland China and Hong Kong,” he said.

“Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China,” he added. “Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains.”

The London-headquartered bank is a heavyweight component of the Hang Seng Index. HSBC shares in Hong Kong fell close to 3% in afternoon trade.

Here are other financial metrics that investors were looking out for:

  • Revenue for 2019 increased by 4.3% from a year ago to $56.1 billion
  • Operating expenses were up 22.2% to $42.35 billion, mainly due to the goodwill impairment
  • Earnings per share was $0.30

HSBC’s restructuring plan

Along with the earnings release, HSBC also outlined its business strategy.

The bank said it plans to suspend share buy-backs for 2020 and 2021 as it undertakes a “high level of restructuring” over the next two years.

HSBC’s planned restructuring include:

  • European business: To reduce sales and trading, and equity research in Europe; transition structured products capabilities from the U.K. to Asia
  • U.S. business: To reduce branch network by 30% and re-position as an “international client-focused corporate bank,” with targeted retail offering
  • Global banking and markets: To shift more resources to Asia and the Middle East, while maintaining global investment banking hub in London
  • Group level: To consolidate retail banking and wealth management, and global private banking into a new division called wealth and personal banking
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